Annual milk production growth in Oceania remains positive despite slowdown

New Zealand and Australia have experienced production growth in January and a favorable price environment. However, production dynamics differ between the two countries. Australia stands highly sensitive to weather conditions and cost developments, while New Zealand’s growth appears more resilient.New Zealand’s milk production totaled 2.43 million tons in January, marking a decline of 10.4% compared to the previous month, in line with the seasonal decline, but an increase of 1.97% over the previous year. Although production remains resilient, growth has slowed down compared to December (+2.45% YoY).Milk solids (MS) production faced a faster increase (+2.88% YoY), reflecting improved nutritional composition in the milk. Although this marks the highest MS output for January in the past five years, growth also declined slightly compared to December (+3.12%).Milk production was marked by regional differences, as the South Island’s more favorable pasture conditions and feed availability drove stronger growth. In contrast, the North Island experienced more challenging weather conditions, placing some constraints on production. Considering that the North Island contributes the largest share of New Zealand’s output, output declines likely contributed to the slowdown in milk growth.Farm gate pricing has reflected a remarkable resilience, despite the overall increase in milk availability. Fonterra farmgate milk prices averaged €35.94 per 100 kilos in January, declining by 13% compared to the previous year. However, prices increased by 6.4% compared to the previous month, indicating a recovery following the sharper declines observed in late 2025. As a result, the annual gap has also narrowed significantly since November (-22% YoY).This resilience reflects a broader market correction, as the Global Dairy Trade (GDT) has observed an overall positive development in 2026. Hence, price levels continue to sufficiently incentivize production, even after the occurrence of the seasonal peak.Australia’s production is more constrainedAustralian dairies collected 718.8 million liters in December, declining by 11.7% compared to the previous month but increasing by 1.49% year-over-year. Just as in New Zealand, production followed a seasonal decline, but the year-over-year also slowed compared to December. Yet, the recovery trajectory appears weaker, considering the production challenges experienced by the Australian dairy sector in 2025.Milk output differed importantly across the states, with growth reported in Victoria (+1.6%) and New South Wales (+3.3%), while South Australia reported a decline (-4.3%) and Western Australia remained broadly stable. The overall performance reflects the strong influence of regional conditions on milk output.Weather conditions remain an important challenge in different regions. Below-average rainfall during January led to declining soil moisture levels across most dairy regions, including extreme heat and fires in Victoria, reducing pasture growth and increasing reliance on supplementary feed. At the same time, water storage levels have declined compared to the previous year, pushing irrigation water prices to multi-year highs in key production areas (+203% YoY in Northern Victoria). Further price growth has been observed on cereal hay (+6% YoY) and protein hay (+41%). These increases in production costs directly impact farmers’ margins and constrain milk output.In line with the overall constraint in milk production, farmgate milk prices have remained on a positive note. According to the Australian Dairy Products Federation (ADPF), farm gate milk prices in Northern Victoria averaged AU$9.19 per kilo of milk solids in the first quarter, increasing by 6.86% compared to the previous quarter and by 9.5% over the previous year. Further price increases are expected in the second quarter, reflecting the tight milk supply and ongoing demand. However, milk production has not increased substantially, despite the favorable pricing.Overall, the sector is observing broad structural challenges, such as high and volatile input costs, combined with continued climate uncertainty, affecting farmer sentiment and reducing the incentives to expand production. Looking ahead, weather conditions are expected to remain challenging, with the Bureau of Meteorology projecting below-average rainfall and higher temperatures likely to persist until June. This will likely restrict pasture growth further, increasing the need for feed supplementation and placing additional pressure on farmer margins.